Release Details

HOUSTON, Nov. 3, 2011 /PRNewswire/ -- Carriage Services, Inc. (NYSE: CSV) today announced results for the three and nine months ended September 30, 2011, compared to the periods of 2010, as follows (amounts in millions, except per share amounts):

MANAGEMENT REORGANIZATION

Mel Payne, Chief Executive Officer, stated, "Beginning early this year, I communicated that Carriage had a goal of 2011 being a "breakout performance" year in celebration of Carriage's 20th Anniversary from its founding in June 1991.  And while we will have our third straight year of record EPS achievement (much larger on a Non-GAAP basis), we have not executed anywhere close to the sustainable earning power potential of our portfolio of operating businesses."

"Two months ago Bill Heiligbrodt joined Carriage full time as Vice Chairman of the Board and Dave DeCarlo assumed the position of Lead Director, with the three of us comprising the Executive Committee of the Board.  With our company facing unprecedented opportunity but needing to take a "big step up" in 2012 performance, we are announcing the following executive management reorganization."

Mel Payne will head operations and long term vision and strategy

Near Term Goals:

1. Lead an updating and roll out of Carriage's Standards Operating Model with a goal over the next five years of achieving same store revenue growth of 3% annually at sustainable Field EBITDA Margins as appropriate for each business.
2. Lead a portfolio optimization process whereby businesses that cannot grow revenue over time at the standard portfolio growth rate will be sold and the proceeds allocated to our acquisition program for reinvestment in higher revenue growth and return businesses.
3. Lead a complete revamping of Training and Development as a strategic function focused more heavily on recruiting and/or developing Managing Partners with 4E Leadership skills and local staff with motivations and skills to provide high value personal services and sales to our client families.

Bill Heiligbrodt will head growth and financing strategies, legal and investor relations

Near Term Goals:

1. Lead the development and execution of a much more advanced Strategic Acquisition Model that will directly link to our Standards Operating Model to create a long term Value Creation Model within the Carriage portfolio of funeral and cemetery businesses.  
2. Lead the investor relations effort to attract new long term shareholders by explaining the value of Carriage's Operating Model when properly executed and the compounding value creation dynamic of adding high quality acquisitions that can quickly be integrated successfully into the Standards Operating Model framework.
3. Lead the revision of our external reporting to a consistent Non-GAAP valuation format that is transparently reconciled to GAAP in press releases and in our Company and Investment Profile.

THIRD QUARTER, YEAR TO DATE RESULTS

Mr. Payne added, "While our third quarter revenue declined by $1.4 million, our year to date revenue increased by $6 million or 4.4% to $142.8 million.  Our year to date same store funeral volumes and revenues were flat, as was the same store average revenue per funeral contract.  Revenue from funeral operations acquired during 2010 and 2011 increased funeral acquisition revenue by $1.6 million in the third quarter and $6.7 million in the first nine months of 2011.  Cemetery revenue declined by $1.6 million or 15.2% in the third quarter and $0.9 million or 2.9% for the nine months.  Financial revenue declined by $321,000 for the third quarter but increased by almost $200,000 year to date."

"Funeral Field EBITDA Margins increased substantially in the third quarter and nine months in both our same store and acquisition portfolios, resulting in an increase in Total Funeral Field EBITDA of $1.8 million or 21% in the third quarter and $4.3 million or 14% for the first nine months.  Total Cemetery Field EBITDA and Cemetery Field EBITDA Margins declined in the third quarter but increased by $400,000 and 210 basis points (to 25.1%) respectively for the nine months.  Financial EBITDA declined by $280,000 in the third quarter but increased slightly for the nine months.  Total Field EBITDA increased by $0.9 million for the third quarter primarily due to an increase of 300 basis points in Field EBITDA Margin, while Total Field EBITDA for the nine months increased $4.9 million or 10.3% due to higher funeral acquisition revenue and an increase of 190 basis points in the Total Field EBITDA Margin to 36.6%."

"Overhead increased substantially in the third quarter and nine months, in large part due to special items that are included in GAAP results that will now be specifically scheduled below our GAAP reported results and reconciled, along with Non-GAAP withdrawable trust income, with our Non-GAAP reported results.  Starting with this release, we will report Non-GAAP and GAAP results, but believe the recurring Non-GAAP performance to be more relevant for valuation purposes."

"Non-GAAP Consolidated EBITDA increased $100,000 for the quarter but increased $4.4 million or 12.6% for the nine months to $39.4 million from $35.0 million.  The Non-GAAP Consolidated EBITDA Margin increased 200 basis points in the 2011 nine month period to 27.6% from 25.6% in 2010.  Management views Non-GAAP Consolidated EBITDA as the approximate cash earning power of our portfolio of operating assets, which is available to service debt and tax obligations, to invest in maintenance of our existing portfolio and acquisition of new operating businesses, and to return capital to shareholders through dividends and share repurchases."

"Our Non-GAAP EPS performance of 10 cents in the third quarter was equal to last year.  However, the Non-GAAP EPS of 55 cents for the nine months was 13 cents or 31% higher than last year's same period, primarily as a result of much higher withdrawable trust income this year of $4.9 million compared to $2.9 million last year."

"Lastly, and most importantly, we produced Free Cash Flow of $19.9 million in the first nine months of 2011 compared to $11.5 in 2010, enabling us to self-finance the $10.3 million cash used for funeral acquisitions in 2011, repurchase $2.2 million of convertible subordinated debentures at a significant discount, invest $2.4 million in existing portfolio growth projects, and still build cash by $3 million during the first nine months to $4.3 million at September 30, 2011.  Because of our confidence in our ability to produce strong and growing Free Cash Flow, our Board earlier today approved a $5 million stock repurchase program and our regular quarterly cash dividend."

"Management strongly views the Non-GAAP Consolidated EBITDA, EPS and Free Cash Flow metrics as the more relevant metrics for valuation of the intrinsic market value of the Company's equity.  We will therefore be referring only to these metrics as we report our results in the future," concluded Mr. Payne.

TRUST FUND PERFORMANCE

We executed a major asset reallocation starting in early August 2011 after the U.S. downgrade by S&P and the European sovereign debt crisis reemerged.  We reduced our discretionary equity portfolio cost basis by $26.1 million, realizing about $2.0 million in losses.  The proceeds were invested primarily into high yield fixed income and preferred stocks, which increased by 23% the recurring income on our discretionary portfolio from $7.9 million on August 5, 2011 to $9.7 million on November 2, 2011.

Shown below are consolidated performance metrics for the combined trust fund portfolios (preneed funeral, cemetery merchandise and services, and cemetery perpetual care) at key dates.

FREE CASH FLOW

Carriage produced Free Cash Flow of $7.2 million for the three months ended September 30, 2011, an increase of $6.8 million compared to $0.4 for the corresponding period in 2010.  The increase in Free Cash Flow is primarily due to the $8.5 million cash withdrawal from its affiliated preneed cemetery trusts as previously disclosed.  The sources and uses of cash for the nine months ended September 30, 2010 and 2011 consisted of the following (in millions):

At September 30, 2011, no amounts were outstanding on the bank credit facility.

Effective August 11, 2011, the Company entered into a new secured revolving credit facility with Wells Fargo Bank, N.A. which contains commitments for an aggregate of $60.0 million with an accordion provision for up to an additional $15.0 million. Prior to this transaction, the Company had a $40 million senior secured revolving credit facility that was scheduled to mature in November 2012.  The new credit facility matures in October 2014 and under certain conditions may be extended to October 2016.  During the third quarter of 2011, the Company recorded a charge of approximately $201,000 to write-off the remaining unamortized loan fees on the prior credit facility.

FOUR QUARTER OUTLOOK

The Four Quarter Outlook ranges for the rolling four quarter period ending September 30, 2012 are intended to approximate what the Company believes will be the sustainable earning power of its portfolio of operating businesses over the next four quarters as its three models are effectively executed.  Performance drivers include funeral contract volumes, cremation mix, cemetery preneed property sales, preneed maturities and deliveries, average revenue per service, financial revenue, overhead items, and the timing and integration of new acquisitions.  Other variables that affect earnings and Free Cash Flow include the outstanding amounts under our bank credit facility, our effective tax rate which is currently estimated to be approximately 40%, preneed trust fund income withdrawals, and the estimated number of diluted shares outstanding which is currently estimated to be approximately 18.4 million.  

The Four Quarter Outlook ending September 30, 2012 includes the Carmen and Roberson acquisition that closed in October, an acquisition that is expected to close in December and an acquisition that is expected to close in January 2012.

Revenue, earnings and Consolidated Free Cash Flow for the four quarter period ending September 30, 2012 are expected to increase materially relative to the full calendar year ended December 31, 2010, in which Carriage earned $0.45 per diluted share, for the following reasons:

• Increase in same store Funeral Revenue averages and same store Funeral Field EBITDA Margins;
• Increase in acquired Funeral Revenue and acquired Funeral Field EBITDA from the 2010 and 2011 acquisitions;
• Increase in Financial Revenue and Financial EBITDA from trust funds; and
• Increase in Cemetery Revenue, Cemetery Field EBITDA and Cemetery Field EBITDA Margins.

Estimates involved in forecasting Free Cash Flow for the four quarter period ending September 30, 2012 include approximately $6.8 million in maintenance capital expenditures and approximately $4.8 million in cash taxes.  The estimates also include Company's new policy of withdrawing realized gains and income on a monthly basis from certain cemetery merchandise and services trust funds which are estimated to be $1.2 million for the rolling four quarter period.

CONFERENCE CALL

Carriage Services has scheduled a conference call for tomorrow, Friday, November 4, 2011 at 10:30 a.m. eastern time.  To participate in the call, please dial 800-860-2442 at least ten minutes before the conference call begins and ask for the Carriage Services conference call, or participants can listen live via the internet by logging into the Company's website at www.carriageservices.com.  A telephonic replay of the conference call will be available through November 11, 2011 and may be accessed by dialing 877-344-7529 and using passcode 445590.  An audio archive will also be available on the company's website at www.carriageservices.com shortly after the call and will be accessible for approximately 90 days.  For more information, please contact Terry Sanford, Executive Vice President and Chief Financial Officer, at terry.sanford@carriageservices.com or 713-332-8475.

Carriage Services is a leading provider of death care services and products.  Carriage operates 158 funeral homes in 25 states and 33 cemeteries in 12 states.

USE OF NON-GAAP FINANCIAL MEASURES

This press release uses Non-GAAP financial measures to present the financial earnings of the Company.  Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported operating results or cash flow from operations or any other measure of performance as determined in accordance with GAAP.  Reconciliations of the Non-GAAP financial measures to GAAP measures are provided at the end of the press release.

Certain state regulations allow the withdrawal of financial income from preneed cemetery merchandise and services trust funds when realized in the trust.  Under current generally accepted accounting principles, trust income is only recognized in the Company's financial statements at a later time when the related merchandise and services sold on the preneed contract is delivered at the time of death.  Carriage has provided financial income from the trusts on a Non-GAAP proforma basis that are withdrawable at the time that the income is realized in the trusts instead of at the time of delivery to reflect the current cash results.

The Non-GAAP financial measures "Free Cash Flow" and "EBITDA" are also reflected in the press release.  Both Free Cash Flow and EBITDA are used by investors to value common stock.  The Company considers Free Cash Flow to be an important indicator of its ability to generate cash for acquisitions and other strategic investments.  The Company has included EBITDA in this press release because it is widely used by investors to compare the Company's financial performance with the performance of other death care companies. EBITDA does not give effect to the cash the Company must use to service its debt or pay its income taxes and thus does not reflect the funds actually available for capital expenditures.  In addition, the Company's presentation of EBITDA may not be comparable to similarly titled measures other companies report. 

FORWARD-LOOKING STATEMENTS

Certain statements made herein or elsewhere by, or on behalf of, the Company that are not historical facts are intended to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These statements are based on assumptions that the Company believes are reasonable; however, many important factors, as discussed under "Forward-Looking Statements" in the Company's Annual Report and Form 10-K for the year ended December 31, 2010, could cause the Company's results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by, or on behalf of, the Company.  The Company assumes no obligation to update or publicly release any revisions to forward-looking statements made herein or any other forward-looking statements made by, or on behalf of, the Company.  A copy of the Company's Form 10-K, and other Carriage Services information and news releases, are available at www.carriageservices.com.

SOURCE Carriage Services, Inc.